Standard & Poor's Ratings Services said it lowered the rating on Lehigh County General Purpose Authority, Pa.'s series 2006 college revenue bonds, issued for Cedar Crest College, one notch to BB-plus from BBB-minus.
The outlook is stable.
The downgrade reflects Standard & Poor's assessment of three years of the college's operating deficits that management attributes to headcount enrollment decreases and its reliance on student-generated tuition and fees. Smaller graduating classes should continue over the next few years. In Standard & Poor's view, however, enrollment pressure will likely remain. The rating service believes management's measures, some of which it is still implementing, to reverse current enrollment trends currently preclude a lower rating.
"It is our view that while Cedar Crest will likely continue to face a challenging enrollment environment, there will be no further balance sheet erosion. While the success of Cedar Crest's plan to increase headcount and recruit more online students is largely unproven, management has taken steps to avoid further financial deterioration," said Standard & Poor's credit analyst Jennifer Neel. "Although unlikely over the outlook's one-year period, we could raise the rating if the college were to experience material and sustained demand improvement and balance sheet metric improvement. We, however, could lower the rating if Cedar Crest were to experience further student enrollment decreases and worsening liquidity."
At fiscal year-end June 30, 2013, the college had approximately $19.3 million of debt outstanding. All of Cedar Crest's debt is fixed-rate debt. The college's general obligation pledge secures the debt. Standard & Poor's understands college officials do not currently have additional debt plans for the one-year outlook period.
